Tuesday, September 13, 2005

Sensible Words on Nebraska Gas Prices

Mr. Wilson at The Lincolnite Blog casts some much-needed light on a topic that has generated a lot of heat recently: gasoline "price gouging." No one enjoys paying higher prices for anything, and when a disruption causes a rapid increase in price the ever-popular search for Someone To Blame can reach a fever pitch. Mr. Wilson's post is chock-full of good economic analysis and common sense. We'd quote a portion of it, but we can't find anything to leave out.

The price of anything in a market is set by the interplay of supply and demand, in other words, through the decisions of individual buyers and sellers. When there is a sudden change in supply (or demand), the price must change to re-balance buyers and sellers. Any attempt to prevent the establishment of the new equilibrium, say by passing a law that sets the price at a different level, inevitably results in a shortage (for a price cap) or a glut (for a price floor).

When prices shoot upward, everything looks like a conspiracy. Suddenly, the fact that the market always keeps prices pretty consistent from one seller to another is "evidence" of "price fixing" rather than the natural part of a market system that is really is. Heads must roll! Fortunately, foolish moves to impose price controls have been avoided (outside of Hawaii), and further damage has been avoided. Gas prices are trending downward again, and shortages and long lines have been avoided.

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